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WRI Comments on the 2009 World Bank Energy Strategy

WRI submitted comments to the US Treasury on key issues the World Bank must address during its World Bank Energy Strategy review.

I. Introducing a New Paradigm for World Bank Support to the Energy Sector

The World Bank Energy Strategy is being developed at a moment when the consequences of the current global economic crisis, the urgency of addressing global climate change, and the continued impacts of the food crisis demand that the international community find new, more effective, and less damaging ways to meet development needs.

The Strategy should be centered on providing citizens of developing countries better energy services. It should emphasize the energy sector’s efficiency and environmental and social benefits.

The World Bank Group should account for GHG emissions associated with its energy investments. This should be framed as a concrete approach to promote transparency, to encourage transformative thinking and to identify and support investment alternatives that could lead to significant emissions reductions. The incorporation of GHG accounting should not be construed as a requirement or a new conditionality that lower carbon investments will always be chosen. Instead it can prompt developing member countries to explore a suite of energy options, including local indigenous renewable energy resources that can also meet their energy needs. In cases where the lower carbon option would entail higher costs, GHG accounting could provide a justification for financing incremental costs, through ODA or other international sources that would make the higher cost option possible.

GHG accounting should be put into place for all energy sector investments within the next 6 months. The World Bank Group must make good on its 2007 commitment to integrate GHG accounting into its operations. Well established, robust methodologies exist to support GHG accounting in the energy sector. Other tools, such as carbon shadow pricing to integrate climate change related costs into energy projects and programs, should be developed without further delay. Internationally recognized methodologies such as the WRI-WBCSD GHG Protocol should be used to ensure consistency, comparability, and credibility in the quantification of emissions and mitigation data. We would reiterate the critical importance of ensuring the transparency of the GHG accounting and shadow pricing analysis performed, and making this analysis publicly available so that the options can understood by national and international stakeholders.

Great caution is needed if the Bank is to increase support for hydropower. Methane emissions from large dams in tropical regions can be a significant source of GHGs – potentially comparable with emissions from coal fired power plants, though some scientific uncertainty on emission intensity remains. Although hydropower development may help the Bank move away from fossil fuel investments, the associated environmental and social risks cannot be overlooked. We recommend that the Bank revisit the recommendations of the World Commission on Dams Assessment in this context.

The Bank should build the capacity of its public and private sector clients to ensure the free, prior and informed consent of communities affected by energy sector projects. The Bank must lead the development and implementation of innovative regulatory frameworks and private sector norms and standards to protect the rights of communities and ensure they receive full benefits from energy sector development. The Bank’s Safeguards and Performance Standards can be enhanced to this purpose, with a focus on improving implementation in practice. The recommendations of the Extractive Industries Review should be revisited in this context.

Bank support for the management and production of transport fuels should address implications for sustainable transport. Programs should be designed to support (and not undermine) shifts towards more efficient, socially accessible, and environmentally sustainable mobility solutions in developing countries. Efforts to address pricing and public subsidies for petrol that make it more difficult to shift to more sustainable transport models can play an important role; however, programs to remove distorting subsidies should establish effective social protections for the poor through transparent and inclusive processes. The Bank should support improved fuel standards and cleaner fuel production (in particular, reducing sulfur content) for air quality and health reasons. Any support for biofuel production and purchase should conform to internationally agreed sustainability criteria, and a complete account of lifecycle greenhouse gas emissions should be completed as part of project appraisal. Close coordination between the development and implementation of the Bank’s energy strategy and its transport strategy will be necessary.

The World Bank should be proactive in helping countries consider options to meet energy needs to sustain their economic development, weighing the full economic, social and environmental costs and benefits of various energy technology choices. Fundamental shifts in the way that we use energy are needed. The World Bank Group’s leadership is needed to reassess the fundamental underpinnings of a fossil fuel based energy economy, alongside measures to reduce emissions associated with conventional energy, and pragmatic solutions to meet immediate demand for energy. The strategy must emphasize local environmental impacts and potential impacts on local communities, as well as the implications for global climate change. The rapid and sustained growth of the global renewable energy industry, and increased deployment of renewable energy technologies in developing countries demonstrate the viability of making fundamental changes in how we produce and use energy.

II. Governance of the Power Sector

The World Bank has acknowledged the failures of its past efforts to support privatization oriented policy reforms in the energy sector in developing countries, and the need to tailor policy solutions to local contexts. It has recently placed increasing emphasis on so-called “public-private partnerships” as means to attract investment in energy. While the Bank has recognized the importance of improving governance of the sector, concrete steps must be taken.

Increasing transparency and creating an open, inclusive and participatory process to discuss what policy measures will best meet a particular country’s needs is critical to identifying credible and legitimate approaches to electricity sector reform. More attention needs to be given to the processes by which new policies and regulatory measures are put in place and operationalized, rather than the prescription of predetermined policies and measures.

The strategy should emphasize promoting the capacity of institutions to practice transparency. In particular, greater disclosure of “technical issues” is essential, even if these issues may be considered too “technical” for the general public to understand. For example, public access to detailed analyses of demand-supply scenarios and about the impacts of new energy pricing projects on public interests can allow people to understand the bases for choosing particular options to meet energy needs.

Similarly, greater disclosure and transparency about the basis for public-private partnerships are needed to ensure that long-term public interests are upheld. Greater public debate and scrutiny of such technical issues can make trade-offs between interests transparent, and help avert costly deadlocks.

Sustained efforts to build the capacity of effectively functioning independent regulators in the energy sector are needed. Independent regulatory systems can create enhance transparency, participation, credibility and predictability of key decisions in the energy sector. It is vital to ensure that regulators practice transparency and proactively address public interest concerns particularly through greater stakeholder engagement and by creating meaningful space for engaging the public.

The mandate and capacity of regulators to deal with sustainable development challenges such as environmental sustainability and social equity needs particular attention, as these institutions will play an increasingly important role in facilitating clean and sustainable energy provision and use. Special institutional mechanisms to include stakeholders and socio-economically weaker groups of society in the regulatory process (for example through appointing capable consumer representatives), are important means to this end.

III. A Robust and Ambitious Results Framework is Needed

Clear, measurable, and ambitious outputs, targets, and time frames for their achievement are critically important to both (a) set clear priorities for the strategy and (b) help track progress periodically against a concrete set of markers, to which Bank management can suggest adjustments in course to respond to changing circumstances and knowledge.

The monitoring strategy should reflect on the lessons from implementation of the previous energy strategy, Fuel For Thought. That strategy did include indicators and a monitoring plan, including specific indicators for particular regions, and immediate term outputs to achieve strategic objectives. In retrospect, however, there appears to have been little public disclosure of progress made in implementing the strategy, and many of its strategic objectives do not appear to have been met. It is not clear that Country Assistance Strategies have adequately reflected the objectives of Fuel For Thought. In developing the new energy strategy the Bank should therefore specify :

The processes and systems for incorporating the strategy into country and sector programming